. 


Should 
California  Municipalities 


OWN   THEIR  OWN 


Water-Works 


AND   IF  SO 


HOW  SHALL   THEY  BE  ACQUIRED 


BY 


ARTHUR  L.  ADAMS 

M.  Am.  Soc,  C.  E. 


INTRODUCTION 

How  to  secure  the  most  extended  and  useful  development  of 
water  supplies  in  California  and  how  to  control  these  supplies,  to  the 
end  that  capital  may  feel  that  degree  of  security  that  invites  invest- 
ment at  low  rates  of  interest,  and  that  the  people  may,  at  the  same 
time,  reap  the  benefits  of  such  development  at  the  least  cost  possible 
for  the  service  rendered,  is  a  question  than  which  there  is  to-day  none 
of  greater  importance  to  the  State  of  California.  For  years  the  most 
bilter  strife  between  water  companies  and  the  public  has  accompanied 
the  operation  of  existing  law  for  the  control  of  rates  charged  lor  the 
use  of  wrater,  while  the  farther  voluntary  investment  of  capital  in  such 
enterprises  has  long  since  ceased.  In  the  present  uninformed  and 
misinformed  condition  of  the  public  mind,  all  attempts  at  improvement 
on  the  part  of  those  realizing  the  importance  of  the  subject  must  fail. 
Ignorance  is  the  parent  of  suspicion,  and  suspicion  is  always  the 
effective  tool  of  opposition.  The  recent  failure  of  the  California  Water 
and  Forest  Association  to  secure  the  passage  or  even  consideration  of 
a  much-needed  bill  codifying  the  water  laws  of  the  State,  so  far  as 
they  affect  uses  outside  of  cities  and  towns,  although  the  bill  was 
formulated  by  men  of  unusual  power  and  public  spirit,  is  conclusive  as 
to  this  need  for  greater  dissemination  of  knowledge. 

The  writer,  in  putting  forth  this  discussion  of  the  method  of  owner- 
ship and  control  best  adapted  to  the  conduct  of  works  supplying 
cities  and  towns,  hopes  it  will  awaken  interest  and  inspire  analytic 
thought  and  discussion  along  lines  that  will  later  make  possible 
remedies  that  will  lead  to  progress  and  peace.  What  is  said  is  the 
result  of  intimate  contact  with  both  sides  of  the  question,  throughout 
a  period  of  years.  That  he  is  an  official  of  a  water  corporation,  and 
has  many  times  acted  in  very  similar  capacities  for  municipal  corpora- 
tions, will  hardly  make  this  expression  of  his  convictions  less  deserving 
of  thoughtful  consideration  by  those  who  are  anxious  to  ascertain  the 
truth.  ARTHUR  L.  ADAMS. 

Oakland,   California. 
March,  1903. 


Should  California  Municipalities  Own 
Their  Own  Water-Works 


AND    IF    SO 


HOW  SHALL  THEY  BE  ACQUIRED 


The   Problem  of  Public   Utilities 

THIS  inquiry  is  a  specific  application  to  one  class  of  works  of  the 
broader  general  question,  WHAT  SHALL  WE  DO  WITH 
OUR  GENERAL  UTILITY  CORPORATIONS?— a  question 
which,  though  heretofore  applying  in  the  public  mind  only  to  such 
industries  as  the  dispensing  of  water,  light,  urban  transportation,  and 
wire  communication,  is  under  the  stimulus  of  modern  consolidation 
and  centralization  of  corporate  interest  and  management,  rapidly 
coming  to  include  all  industries  that  are  already  or  are  coming  to  be 
essentially  monopolistic  in  character.  The  whole  subject  is  one  of 
constantly  increasing  interest.  The  highly  organized  state  of  modern 
society,  with  its  constantly  increasing  state  of  dependence,  the  one  upon 
the  other,  of  all  classes  of  citizens;  the  extreme  sensitiveness  of  the 
public  to  the  possession  by  any  of  arbitrary  power  affecting  its  welfare 
or  convenience,  and  the  inherent  selfishness  of  human  nature  have 
produced  a  state  of  general  unrest,  which  emphasizes  the  necessity  for 
study  of  the  subject,  with  view  toward  a  more  perfect  popular  under- 
standing of  existing  conditions  and  principles,  and  the  possible  modern- 
izing of  present  relations  between  the  industries  and  the  public  which 
they  serve. 

The  whole  subject  is  fraught  with  difficulties.  All  great  issues, 
because  of  human  limitations,  engender  intense  prejudice  and  zealous 
partisanship,  and  like  a  boiling  pot  bring  to  the  surface  as  filth  and 
dirt  a  host  of  human  vampires,  who,  by  the  raising  of  false  issues  and 
the  setting  up  of  false  standards,  seek  to  perpetuate  that  condition  of 
strife  which  best  enables  them  to  prey  upon  the  body  politic.  All 
these  influences  render  slow  and  tedious  that  ascertainment  of  truth 
which  must  always  precede  effective  remedy,  though  they  serve  their 

3 


4  Should    California    Municipalities 


purpose  in  a  wise  economy  as  manifestations  of  a  pressing  need,  like 
the  squeaking  of  a  car  axle  or  the  barking  of  a  watch-dog.  The 
remedies  are,  however,  always  found  by  those  whose  minds  art- 
developed  above  prejudice,  by  those  who  approach  great  problems 
with  the  scientific  spirit,  the  judicial  temper,  with  optimistic,  construct- 
ive faith.  Such,  by  gathering  together  the  various  elements  of  truth 
as  they  are  revealed  by  processes  of  experience  and  logic,  are  able  to 
point  the  way,  not  perhaps  to  ultimate  attainment,  but  in  its  direction. 

Thus,  in  seeking  such  a  solution  of  this  question  as  shall  in  a 
manner  consistent  with  the  highest  ethical  standards  effect  the  greatest 
good  to  the  greatest  number,  each  one  interested  will  have  his  part. 
The  future  will  in  the  light  of  revealed  truth  write  some  down  as  those 
who  saw  clearly  the  end  in  advance  of  their  day,  others  as  guide-posts 
pointing  in  the  wrong  direction,  and  many  as  only  dogs  that  helped  to 
swell  the  general  alarm.  But  the  desired  result  will  somehow^  be 
achieved.  How  soon  depends  finally  upon  the  inclination  of  the 
great  middle  classes. 

The  selection  of  wise  council  makes  most  effective  haste.  It  is, 
therefore,  to  the  prudent,  the  thoughtful,  the  experienced,  we  must  look 
for  guidance.  Jurists,  economists,  statesmen,  sociologists,  and  those 
actively  engaged  in  the  creation  and  management  of  such  industries, 
can  contribute  toward  an  ultimate  solution,  and  should  do  their  part  in 
rightly  educating  the  public  mind  and  the  public  conscience.  For 
without  bringing  conviction  to  the  public,  nothing  of  enduring  benefit 
can  be  accomplished. 

The    Best    Method    of    Handling   Water-Works    Still    an 

Open    Question 

Much  has,  indeed,  been  already  said  and  written  by  such  men, 
especially  by  professors  of  economics  in  our  universities;  and  the 
superficial  observer  may  have  concluded  that  so  far  as  water-works  are 
concerned  the  question  had  already  been  resolved  in  favor  of  munic- 
ipal ownership.  Statistics  prove  "such  conclusions  to  be  premature. 
According  to  the  government  reports  of  1898,  there  are  in  the  United 
States  3,326  water-works,  four-fifths  of  which  have  been  built  since 
1880.  Of  the  total  number  53.8  per  cent  are  owned  by  municipalities, 
a  percentage  which  is  still  less  than  that  prevailing  in  1875,  exactly  the 
same  as  prevailed  in  1855,  but  higher  than  has  prevailed  in  the  interim. 
The  remainder  are  privately  owned.  Owing  to  the  fact  that  most  of 
our  large  cities  own  the  water-works,  the  investment  in  municipal 


Own    Their    Own     Water-  Works 


plants  greatly  exceeds  the  investment  in  private  plants.  To  base 
opinion  on  the  mere  fact  that  the  number  of  municipally  owned  plants 
in  the  United  States  now  exceeds  the  number  of  privately  owned 
plants,  and  that  the  ratio  is  increasing,  is  to  anticipate  the  result  before 
the  experiment  is  complete;  is  to  argue  from  the  standpoint  of  senti- 
ment, rather  than  sense;  is  to  revert  to  philosophic  processes  in  vogue 
before  the  time  of  Bacon;  is  to  assume  that  public  tendencies  must  be 
enduring,  and  therefore  founded  on  established  economic  truth.  Such 
a  process  of  reasoning  would  have  justified  the  institution  of  slavery 
any  time  before  1850;  indeed,  would  have  perpetuated  every  great 
fallacy  that  has  gained  currency  in  times  past,  and  would  render  any- 
thing in  nature  of  reform  out  of  the  question. 

Experience  is  the  final  test  of  every  truth,  and  few  such  experi- 
ments are  tried  out  to  final  conclusions  in  a  generation. 

Different   Methods    in   Vogue 

There  are  three  methods  by  which  public  utility  works  may  be 
administered:— 

First,  by  private  interests  unrestricted; 

Second,  by  private  interests  under  public  regulations; 

Third,  by  the  public  direct  (municipal  ownership),  and  the  problem 
is,  WHICH  OF  THESE  METHODS  IS  BEST  CALCULATED  TO 
AFFORD  A  SERVICE  OF  A  SUITABLE  DEGREE  OF  EXCEL- 
LENCE AT  THE  LEAST  EXPENSE  TO  THE  CONSUMER?  It 
may  be  thus  simply  stated,  for  in  the  final  analysis  all  allied  questions 
of  ethics  and  economics  resolve  themselves  into  the  SCIENCE  OF 
WISE  EXPENDITURE,  which  must  finally  determine  the  average  of 
rates.  We  have  seen  that  by  far  the  larger  part  of  the  works  of  public 
water  supply  in  the  United  States  have  been  built  during  the  past 
twenty-two  years.  Relatively  few  have  been  constructed  by  private 
companies  and  operated  without  some  recognized  form  of  public 
restriction.  The  great  majority  have  been  built  either  under  municipal 
ownership,  or  under  private  ownership,  with  some  form  of  restriction  as. 
to  the  rates  to  be  charged.  Outside  of  California  these  latter  works 
have  usually  been  built  under  a  franchise,  in  the  nature  of  a  contract 
between  the  company  and  the  municipality,  running  for  a  period  of 
twenty  years  or  more,  the  franchise  usually  specifying  the  schedule 
of  maximum  charges  that  should  be  made  for  supplying  water  for  both 
private  and  public  purposes.  Seldom  has  any  provision  been  made  for 
any  supervision  or  modification  of  rates  by  the  public  authorities  during 


Should    California    Municipalities 


the  life  of  the  franchise.  An  option  has  frequently  been  given  the 
municipality  to  acquire  such  properties  at  an  appraised  valuation  at 
the  expiration  of  the  franchise  period. 

California  occupies  the  rather  unique  position  of  having  attempted 
by  constitutional  enactment  to  place  rate  fixing  absolutely  under  State 
control,  having  declared  "the  use  of  all  waters  now  appropriated  or 
that  may  be  hereafter  appropriated  for  sale,  rental,  or  distribution  to  be 
a  public  use, ' '  and  having  made  it  mandatory  upon  the  boards  of  city 
trustees  to  fix  rates  annually. 

It  will  be  observed  that  these  two  methods  of  dealing  with  this 
industry  are  in  theory  essentially  different.  In  the  former  case  the 
right  of  private  contract  is  mutually  exercised,  a  condition  precedent  to 
the  building  of  the  works;  and  both  parties  in  interest,  the  public  and 
the  investor,  take  their  chances  thereunder  for  better  or  for  worse.  In 
practise  this  has  apparently  operated  far  more  favorably  to  the  con- 
sumer than  to  the  investor,  as  is  indicated  by  the  statistics  of  the 
Fourteenth  Annual  Report  of  the  United  States  Commission  of  Labor, 
published  in  1898.  Of  373  privately  owned  plants  whose  finances  were 
investigated  by  the  department,  65,  or  17  per  cent,  were  not  only  earn- 
ing no  interest  on  their  investment,  but  were  sustaining  an  additional 
loss;  1 88  of  the  remainder,  or  50  per  cent  of  the  whole,  were  earning 
less  than  5  per  cent  on  their  investments;  222  of  those  earning  any 
interest,  or  81  per  cent  of  the  whole,  were  earning  less  than  6  per  cent; 
and  only  86,  or  22  per  cent,  were  earning  6  per  cent  or  more.  Thus 
from  50  to  80  per  cent  of  the  works  were  not  even  earning  the  rate  of 
interest  borne  by  their  bonds.  Readjustments  incident  to  the  expira- 
tion of  franchises  have  usually  been  accompanied  by  friction. 

In  the  case  of  the  State  reserving  the  right  to  determine  the 
rate  to  be  charged,  as  in  California,  THIS  RIGHT  OF  PRIVATE 
CONTRACT  IS  OF  COURSE  DENIED,  OR  RATHER  NO 
LONGER  EXISTS.  The  business  is  treated  as  monopolistic  in 
character,  therefore  unsuited  for  the  free  exercise  of  this  right  in  the 
securing  of  reasonable  rates  to  the  consumer.  In  lieu,  therefore,  the 
State  undertakes  to  say  each  year  what  rates  shall  constitute  a  fair 
return  only  to  the  owners  of  such  properties  for  the  service  which  they 
render. 

It  is  deemed  unnecessary  in  this  discussion  to  more  than  make 
mention,  as  has  been  done,  of  unrestricted  private  ownership.  Such  a 
method  of  dealing  with  this  problem  is  believed  by  the  author  to  be 
infinitely  superior  to  the  prevailing  faulty  and  uneconomic  application 
of  the  method  ol  State  control,  but  is  at  present  out  of  the  question 


Own    Their    Own     Water-  Works 


through  almost  entire  unanimity  of  public  sentiment  in  favor  of  the 
other  methods. 

This  brief  general  review  of  practise  and  theory  brings  us  to  the 
specific  consideration  of  our  subject,  SHOULD  A  CALIFORNIA 
MUNICIPALITY  OWN  ITS  WATER-WORKS?  AND,  IF  SO, 
HOW  SHALL  IT  BE  ACQUIRED? 

Present  Condition  of   the   Question   in   California 

Let  us  briefly  review  the  history  and  present  condition  of  this 
question  in  California.  Prior  to  the  adoption  of  the  present  State  con- 
stitution in  1879,  municipalities  were  free  to  secure  water  service  by 
such  means  as  they  deemed  most  advantageous,  either  by  building  their 
own  works  or  by  granting  to  private  persons  or  corporations  such 
franchises  as  would  induce  them  to  construct  and  operate  such  systems. 
The  organic  law  imposed  no  restrictions.  A  badly  mixed  system  of 
statutory  laws,  while  preserving  the  right  of  contract,  provided,  also,  a 
means  whereby  the  rates  to  be  charged  could  be  determined  by  a  local 
commission,  appointed  jointly  by  the  city  and  the  water  company. 
Nearly  if  not  all  the  cities  decided  this  question  in  favor  of  private 
ownership,  and  the  works  in  nearly  all  our  larger  '  places  were  so 
created.  The  people,  however,  in  the  adoption  of  the  present  organic 
law,  changed  all  this,  and  resolved  to  try  the  method  of  control  by  a 
public  body  of  rates  to  be  charged,  and  to  that  end  having  declared 
the  appropriation  of  water  for  sale,  rental,  or  distribution,  to  be  a  public 
use,  subject  to  the  regulation  and  control  of  the  State,  made  it  manda- 
tory upon  the  city  boards  of  trustees  to  annually  fix  rates  to  be 
charged  by  such  dispensing  individuals  or  corporations,  and  this 
without  defining  in  any  way  what  should  constitute  the  basis  for  or 
manner  of  determining  the  rates. 

The  State  Supreme  Court  has  interpreted  the  Constitution  by 
declaring  "that  it  was  not  the  intention  of  the  framers  of  the  Constitu- 
tion to  distinguish  between  rights  then  existing  and  those  thereafter 
acquired  in  the  business  of  supplying  cities  and  towns  with  water,  nor 
was  it  their  intention  to  confiscate  private  property,  but  the  meaning  of 
the  section  in  regard  to  the  fixing  of  rates  for  such  business  is  that  the 
governing  body  ot  the  municipality,  upon  a  fair  investigation  and  with 
the  exercise  of  judgment  and  discretion,  shall  fix  reasonable  rates  and 
allow  just  compensation." 

Subsequent  legislation  made  it  the  duty  of  water  companies  to  file 
annually  with  municipal  authorities  certain  financial  statements,  calcu- 


8  Should    California    Municipalities 

lated  to  show  the  company's  investments,  revenues,  and  expenditures, 
for  information  and  guidance  in  the  fixing  of  rates. 

To  complete  this  revulsion  in  the  method  of  dealing  with  these 
public  utility  industries,  the  State  granted  to  any  one  by  constitutional 
provision  the  right  to  lay  pipes  in  any  public  street  of  any  town  or 
city,  not  owning  its  own  works,  and  to  dispense  water  and  collect  pay- 
ment therefor,  subject  only  to  supervision  of  municipal  authorities  as  to 
the  manner  of  using  the  streets  and  the  rates  to  be  charged  for  the 
water  sold. 

Here  was  thus  produced  a  remarkable  situation,  the  intention  of 
which  was  no  doubt  good  as  far  as  it  was  calculated  to  protect  the 
consumer  against  extortionate  charge  for  a  necessity,  the  dispensing  of 
which  is  essentially  monopolistic  in  character,  but  which  could  by  its 
deficiences  and  strange  mixing  of  economic  laws  scarcely  have 
been  formulated  in  a  manner  calculated  to  produce  consequences  of 
greater  evil. 

What  are  these  defects,  and  what  have  been  the  consequences? 
To  recapitulate:— 

1.  The  State  has  destroyed  the  right  of  free  private  contract  in 
the  determination  of  the  price  to  be  charged  for  the  commodity,  both 
as  between  the  company  and  the  city  authorities  as  representatives  of 
the  public,  and  between  the  company  and  the  individual  consumers. 

2.  It  has  denied  the  applicability  of  the  law  of  supply  and  demand 
in  determining  price. 

3.  In  lieu  thereof,  it  has  in  recognition  of  the  monopolistic  char- 
acter of  the  industry    reserved    to  the   public   the  exclusive   right  of 
saying  how  much  shall  be  charged,  and  has  limited  this  amount  to  only 
so  much  as  shall  constitute  a  "fair"  return. 

Thus  far  these  acts  rest  upon  sound  theory,  although  a  theory 
radically  different  from  that  which  it  supplanted  and  under  which  some 
of  the  larger  works  were  originated.  In  the  language  of  a  prevailing 
opinion  of  our  Supreme  Court:  "'In  effect  the  State  may  be  said  to 
have  appropriated  the  water  and  the  plant  to  public  use."  "For  that 
appropriation  it  is  bound  to  make  just  compensation."  But  having 
applied  a  theory  of  control  which  is  nothing  more  than  a  forced  loan 
for  the  public  benefit,  in  which  the  principle  of  competition  can  have  no 
economic  or  ethic  part  in  the  determination  of  the  return  to  be  made 
for  such  loan,  and  which  it  has  effectually  prevented  in  the  case  of 
city  ownership  by  denying  the  use  of  the  streets  by  a  competing  com- 
pany, it  lets  the  bars  down  in  the  case  of  the  private  company  and 
invites  competition  in  this  industry  by  throwing  the  use  of  public  streets 


Own     Their    Own     Water-  Works 


open  to  any  \vho  choose  to  use  them.  Thus  it  provides  that  rates 
shall  be  limited  to  that  which  is  but  fair  and  just,  and  coincidentally 
invokes  competition  to  effect  farther  reduction.  Here  is  the  first  great 
economic  error  and  infringement  of  simple  justice. 

Again,  the  power  of  determining  the  rates  to  be  charged  is  vested 
in  town  councils  and  boards  of  city  trustees,  themselves  rate  payers, 
elected  by  rate  payers,  and  almost  never  in  the  present  condition  of 
practical    politics    in    this    country    representative    of    a    community's 
average  intelligence  and  morals.      What  is  to  be  said  in  justification  of 
such  a  provision  in  this  age,  when  in  all  ages  and  among  all  peoples 
governed  by  law  it  has  been  recognized    that  impartiality,   morality, 
and  intelligence  are  the  very  bases  of  an  effective  judiciary?     This  is 
the  second  blunder,  so  apparent  as  to  be  inexcusable. 

In  failing  to  define  what  constitutes  a  just  return  for  the  rendering 
of  such  service,  and  in  requiring  that  the  whole  question  must  be 
reopened  every  year,  the  opportunity  of  largely  undoing  the  conse- 
quences of  the  mistake  of  delegating  this  power  to  an  incompetent,  self- 
interested  tribunal  was  lost,  and  the  utter  failure  of  the  whole  plan 
guaranteed,  with  the  realization  of  all  the  attendant  evils  of  civic  warfare, 
avarice,  intrigue,  reprisals,  destruction  of  confidence,  degradation  of 
private  and  public  morals,  and  tremendous  waste  of  vital  energies,  inval- 
uable were  they  directed  in  the  profitable  pursuits  of  peace,  —  evils 
which  are  the  direct  outgrowth  of  placing  vested  interests  so  largely  at 
the  mercy  of  such  a  tribunal,  and  which  will  never  be  wholly  remedied 
until  this  fundamental  cause  is  removed. 

There  are  other  defects  of  importance  only  less  than  those  enumer- 
ated, which  space  here  forbids  mentioning,  all  calculated  to  make 
management  along  sound,  conservative,  and  economical  lines  impossible, 
resulting  of  course  in  a  high  cost  of  production,  and  corresponding  high 
water  rates  or  a  financial  loss  to  the  operating  companies. 

Through  this  open  door  of  sinfully  defective  law,  which  has 
strangely  set  at  defiance  every  principle  of  ethics,  the  devil  entered 
California  municipalities,  and  we  are  to-day  face  to  face  with  his 
destructive  work  of  more  than  twenty  years. 

Let  it  not  be  ignorantly  thought  that  either  corporate  or  com- 
munity interests  have  flourished  under  these  conditions.  Only  waste 
has  resulted,  and  waste  confers  no  permanent  benefits. 

Let  not  effect  be  carelessly  mistaken  for  cause,  and  citizens  seeing 
only  the  adversary  instead  of  the  error  that  makes  him  such,  continue 
to  act  like  strange  cats  in  a  box,  requiring  only  the  prodding  of  the 
third  party  (always  an  ignorant  or  a  designing  party)  to  keep  them  in 


io  Should    California    Municipalities 


incessant  struggle.  All  have  been  alike  the  victims  of  economic  error 
incorporated  in  our  organic  law,  and  all  that  we  see  in  our  present 
condition  is  but  the  fruits  of  that  error,  regretted  unquestionably  no 
less  sincerely  by  corporate  than  by  private  interests. 

Has  the  experience  been  altogether  without  profit? — Absolutely, 
so  far  as  it  determines  anything  regarding  the  economic  advantages 
of right  public  control  of  private  corporations  as  a  means  of  handling 
our  public  utilities.  Negatively,  it  has  with  tremendous  force  shown 
how  not  to  do  it.  Morally,  it  shall  have  been  worth  almost  what  it 
has  cost,  if  men  shall  thereby  have  been  taught  that  no  lasting  gain 
in  either  peace  or  profit  can  be  secured  at  the  price  of  an  unfair  act, 
whether  conceived  in  ignorance  or  design;  and  that  not  even  the  State 
can  successfully  enforce  a  law  distinctly  lacking  in  justice  or  prudence. 

A   Change  of  Program   Required 

This  brief  review  of  the  conditions  in  this  State  growing  out  of  the 
experimentation  of  the  past  generation  makes  apparent  the  necessity 
for  a  change  of  program.  What  shall  it  be,  the  correcting  of  the 
defects  of  the  present  laws,  made  manifest  by  experience,  in  a  farther 
effort  to  secure  a  wisely  formulated  scheme  of  public  regulation  and 
control,  or  shall  it  be  the  abandonment  of  this  method  in  favor  of 
municipal  ownership?  To  repeat  the  test  of  expediency,  Which  of 
these  methods  is  best  calculated  to  afford  a  service  of  a  suitable  degree 
of  excellence  at  the  least  expense  to  the  consumer  ' 

The  general  question  of  private  ownership  (unrestricted)  vs.  public 
ownership,  as  an  academic  question,  has  been  for  many  years  a  subject 
of  almost  constant  debate  and  discussion  by  public  speakers  and  writers 
on  economics  and  social  questions;  but  almost  all  disputants  in  California 
have  failed  to  recognize  that  the  question  here  is  a  radically  different 
one.  Indeed,  the  public  at  large  almost  invariably  assume  unrestricted 
freedom  on  the  part  of  the  corporation  to  be  the  condition  prevailing  in 
this  State,  and,  applying  the  well-known  arguments  in  such  cases,  reach 
conclusions  having  absolutely  no  logical  application  to  conditions  here. 
In  absence  of  any  knowledge  drawn  from  intimate  personal  contact 
with  both  sides  of  the  question,  and  of  any  authentic  public  information 
suitable  for  making  comparisons  and  deductions,  such  discussions  have 
always  been  wholly  opinionative,  without  test  or  proof,  and  so  largely 
profitless,  however  interesting. 

In  these  discussions  those  associated  with  corporate  interests  are 
seldom  heard  from,  though  none  should  be  better  fitted  to  speak. 


Own     Their    Own     Water-  Works  1 1 


This  because  the  public,  influenced  by  powerful  enemies,  is  arrayed 
against  them,  and  they  usually  see  neither  inspiration  nor  hope  in 
speaking  to  ears  so  deafened  by  distrust  and  suspicion  as  to  dismiss 
and  discredit  all  that  may  be  said,  without  applying  to  it  the  test  of 
reason  or  experience  to  see  if  it  be  true.  The  writer  believes  this  policy 
of  silence  to  be  wrong,  for  only  educational  processes  can  permanently 
right  wrongs,  and  truth,  if  it  be  truth,  must  finally  be  heard. 

To  supply  the  needed  facts  drawn  from  actual  experience,  the 
United  States  Commissioner  of  Labor  in  1898  undertook  to  ascertain 
the  relative  advantages  of  public  and  private  ownership  by  an  analysis 
of  the  results  in  the  case  of  about  one  thousand  out  of  the  thirty-three 
hundred  plants  in  the  United  States.  While  a  vast  amount  of  valuable 
statistical  matter  resulted,  the  direct  object  professedly  failed,  as  might 
have  been  anticipated,  because  of  the  dissimilarity  of  conditions  under 
which  all  water-works  are  invariably  built  and  operated.  Were  water 
manufactured  and  distributed  by  established  uniform  processes  and 
means,  comparisons  of  value  might  be  made.  Instead,  it  must  be 
secured  where  found  by  any  means  and  at  any  distance  and  distributed 
in  the  manner  best  suited  to  the  locally  prevailing  conditions  of  con- 
struction cost,  of  topography,  and  of  use  present  and  prospective.  It 
is  a  problem  without  constant  factor.  The  cost  of  production  must, 
therefore,  always  be  a  local  question  largely  without  precedent  else- 
where for  guidance,  and  only  comparisons  of  the  most  general  and 
tentative  character  can  be  made  and  conclusions  most  cautiously  drawn 
therefrom. 

Municipal    Ownership     Vs.    Private    Ownership     Publicly 

Controlled 

When,  however,  the  question  is  confined  to  municipal  ownership 
vs.  private  ownership  under  equitable  public  regulation  and  control, 
the  whole  problem  is  immensely  simplified,  and  may  be  analyzed  on 
purely  academic  lines  without  risk  of  experiment  developing  very 
serious  errors  in  the  resulting  conclusions. 

Before  discussing  this  question,  "equitable  public  regulation  and 
control ' '  must  be  denned.  The  right  of  ownership  and  of  protection 
to  property  is  assumed.  In  a  sentence,  public  regulation  and  control 
of  rates  or  works  is  equitable  when  it  affords  annually  sufficient  reve- 
nue to  meet  the  reasonable  cost  of  producing  the  service  rendered 
plus  a  suitable  profit  as  a  reward  for  the  undertaking.  Justice  can  go 
no  farther  than  this  in  conferring  benefits  upon  the  people. 


12  Should    California    Municipalities 


Whether  works  are  owned  by  a  private  or  municipal  corporation, 
the  revenues  must  be  sufficient  to  meet  cost  of  production,  or  a  loss  is 
sustained.  The  question  thus  narrows  itself  down  to  this,  Under  which 
svstem  of  ownership  will  this  resulting  cost  of  production  be  the  least  / 
The  costs  of  production  may  be  enumerated  as  follows:— 

r.    Interest  on  investment. 

2.  Sinking  fund    contribution    sufficient    to  replace  all  structures 
perishable  or  of  limited  utility. 

3.  Insurance  on  all  risks. 

4.  Taxation. 

5.  Current  operation  and  maintenance  expenditures.     These  five 
items  equal  cost  of  production,  and  plus  net  profit  equal  an  equitable 
revenue. 

How  would  these  items,  or  to  what  extent  need  they,  be  affected 
by  the  exigency  of  ownership,  public  or  private  ? 

Interest  rates  for  a  given  time  and  place,  other  things  being  equal, 
are  determined  by  the  security  offered.  Municipal  bonds  pledging  the 
property  of  every  citizen  in  payment  will  sell  at  a  lower  interest  rate 
than  bonds  pledging  only  the  works  which  their  proceeds  are  designed 
to  create,  although  this  difference  would  not  exceed  one-half  to  three- 
fourths  of  one  per  cent,  if  the  rate-fixing  power  were  certain  to  be 
exercised  always  with  rectitude  and  intelligence.  For  the  saving  of 
one-half  to  three-fourths  of  one  per  cent  in  interest  rate,  the  municipal- 
ity exacts  of  the  taxpayers  the  loan  of  their  credit.  Can  anything  be 
regarded  as  a  saving  for  which  the  equivalent  is  paid  either  in  money 
or  credit? — Certainly  not. 

Cost  of  insurance  is  an  element  of  expense  in  determining  the  cost 
of  producing  any  commodity  where  risks  are  involved,  which  can  not 
be  omitted  if  results  are  to  be  made  certain  and  secure.  It  is  evident 
that  this  item  need  not  be  to  any  large  degree  affected  by  the  question 
of  ownership. 

A  sinking  fund,  to  provide  for  the  return  of  capital  invested  in 
structures  of  usefulness  limited  as  to  time,  is  a  method  of  preserving 
intact  the  invested  capital,  and  is  unaffected  by  ownership,  but  is 
affected  in  the  aggregate  by  the  amount  of  the  investment,  and  so  is 
dependent  upon  the  economic  skill  of  the  builder  of  the  works.  It 
has  been  customary  to  enter  the  advantage  in  this  to  the  credit  of 
the  privately  owned  plant,  which,  when  such  plants  are  unrestricted  by 
the  public,  is  probably  correct,  but  which  under  the  conditions  here 
considered  would  probably  be  without  marked  economic  tendency  the 
one  way  or  the  other. 


Own     Their    Own     Water-  \Vorks  13 


Taxation  is  a  negligible  quantity.  Publicly  owned  plants  pay  no 
taxes,  but  just  that  amount  of  property  is  by  this  means  taken  out  of 
the  communities'  assessable  value.  The  taxation  of  a  privately  owned 
plant  under  the  conditions  assumed  is  but  an  indirect  tax  upon  the  rate 
payers,  which,  if  the  property  were  unassessed,  they  would  not  be 
required  to  pay. 

Current  maintenance  and  operation  expenditures  afford  the  chief 
field  for  argument. 

These  charges  always  make  up  the  larger  item,  save  interest,  and 
are  chiefly  influenced  by  the  character  of  the  operating  forces  from  the 
chief  official  down,  and  the  condition  and  limitations  under  which  the 
property  is  managed. 

The  success  of  any  industry  is  first  and  chiefly  affected  by  the 
degree  of  wisdom  exercised  in  its  financial  inception  and  conduct; 
second,  in  the  intelligence  of  its  management,  and  the  efficiency  of  the 
entire  organization. 

It  seems  to  the  writer  that,  in  absence  of  anything  in  the  nature  of 
absolute  proof,  for  there  is  none  such,  the  assumption  is  warranted  that 
our  great  successes  as  a  people, — those  successes  that  have  made  us 
the  economic  producers  of  the  world, — are  chiefly  due  to  that  freedom 
of  the  individual  which  has  given  full  play  to  the  development  of 
individual  capacity,  and  to  that  industrial  freedom  which  has  brought 
together  in  the  erection  and  conduct  of  works  these  marked  individual 
capacities. 

The  writer  believes  it  to  be  true  that  any  general  application  to  all 
large  interests  of  government  ownership  and  control  would  utterly 
destroy  that  condition  and  environment  necessary  for  the  development 
of  this  high  individual  capacity  upon  which  this  successful  structure 
rests;  and  that  with  the  passing  of  the  present  masters,  there  would  be 
found  none  to  take  their  place.  The  Chinese  and  other  oriental 
peoples  are  to-day,  in  their  poverty,  their  dependence,  their  general 
incompetence  and  degradation,  an  example  of  the  fruits  of  paternalism. 
But  it  is  not  clear  because  an  extreme  application  of  a  principle 
brings  injury  that  every  application  is  wrong.  We  may  indulge  in 
socialism  perhaps  without  great  risk  so  long  as  the  field  of  private  and 
individual  initiative  is  left  sufficiently  broad  to  produce  the  men  which 
are  necessary  for  the  successful  handling  of  government- owned  prop- 
erties. It  is  unnecessary  to  here  attempt  to  define  the  practical  limits 
of  such  a  field.  Suffice  it  to  say  that  without  risk  to  our  liberties  the 
line  of  demarcation  may  be  so  drawn  as  to  place  water-works  in  the 
category  of  public  properties. 


14  Should    California    Municipalities 


Private  ownership  under  right  public  regulation  preserves  this 
principle  of  progress  better  than  public  ownership,  although  regulation 
on  the  basis  of  allowing  only  cost  of  production  plus  a  fixed  profit 
destroys  the  hope  of  reward  of  good  management,  which  is  the  chief 
actuating  force,  unless  the  amount  of  profit  is  made  conditioned  in 
some  effective  way  upon  the  efficiency  of  management. 

When  the  duties  and  honors  of  citizenship  come  to  be  recognized 
and  appreciated,  when  those  ' '  who  would  be  great  among  us  seek  to 
serve"  rather  than  rule,  public  ownership  will  have  behind  it  an 
actuating  force  amply  sufficient  to  insure  economic  success  not  second 
to  any  other  method  of  control.  So  this,  too,  becomes  in  its  final 
analysis  for  a  given  community  a  local  question.  Whether  or  not  a 
given  community  has  sufficiently  freed  itself  from  the  thraldom  of 
debased  politics  to  safely  count  upon  the  same  competence  and  atten- 
tion to  public  duty  on  the  part  of  its  officials  that  is  given  by  their 
directors  to  the  affairs  of  large  industries  can  not  be  finally  decided  by 
reference  to  the  affairs  of  other  cities,  and  the  conclusion  reached  prior 
to  an  extended  period  of  actual  trial  will  be  based  rather  upon  mere 
opinion  than  actual  proof,  of  which  there  can  be  none. 

There  are  municipalities  that  are  handling  their  own  works  with 
great  skill  and  splendid  results,  and  there  are  others  honeycombed  with 
corruption  and  all  forms  of  mismanagement. 

As  an  academic  question,  the  writer  believes  there  is  little  room 
for  choice  between  the  two  methods  here  discussed  of  dealing  with  this 
public  utility,  so  far  as  these  methods  need  effect  the  price  of  the  com- 
modity. If  equity  requires  the  owners  of  privately  owned  plants  to 
receive  for  their  commodity  cost  plus  a  margin  of  profit,  the  item  of 
profit  as  an  increment  of  price  will  likely  be  offset  by  the  slight  advan- 
tage of  such  a  plant  in  securing  efficient  organization,  leaving  the 
price  to  the  consumer  under  the  two  methods  substantially  the  same. 

The   Real   Problem  and    Its  Solution 

Success  or  failure,  whatever  the  ownership,  will  usually,  however, 
be  determined  by  the  conditions  in  law  under  which  the  works  are 
operated,  and  it  is  here  that  the  best  thought  should  be  employed,  and 
yet  very  little  has  been  said  or  written  on  this  phase  of  the  subject. 
By  the  establishment  of  a  condition  of  substantial  justice  between  the 
dealer  and  the  individual  consumers;  by  creating  conditions  calculated 
to  foster  effective  management;  and  by  guaranteeing  a  continuance  ol 
these  conditions  through  wise  legal  enactments,  it  is  certainly  possible 


Own    Their    Own     Water-  Works  15 

for  the  average  American  town  or  city  to  get  reasonably  satisfactory 
results  from  either  system  of  ownership.  But  no  advance  in  civic  con- 
ditions will  warrant  the  adoption  of  methods  of  regulation  or  control 
not  calculated  to  secure  the  very  best  results  of  which  our  civilization 
is  capable. 

To  this  end,  if  we  are  to  continue  to  have  private  ownership  under 
public  regulation  and  control  in  California,  the  law  must  define  in  no 
uncertain  terms  what  capital  is  to  be  allowed  by  way  of  returns;  the 
rates  must  not  be  subject  to  disturbance  or  change  oftener  than  once 
in  five  or  ten  years;  the  rate-fixing  power  must  be  exercised  by  an 
impartial  tribunal  of  men  of  the  highest  character  expert  in  dealing 
with  such  questions;  the  weight  of  authority  must  be  given  to  the 
financial  statements  of  water  companies,  and  suitable  moral  restraint 
placed  upon  the  actions  of  all  parties  concerned,  by  having  the  accounts 
of  such  companies  audited  by  the  State.  There  can  be  no  peace  with- 
out public  intelligence  and  public  confidence.  Publicity  can  alone 
make  the  public  intelligent,  and  corporations  are  without  means  of 
inspiring  confidence  without  state  auditing  of  their  accounts. 

Such  modifications  of  the  present  law  can  only  be  secured  by  tin- 
adoption  of  a  suitable  constitutional  amendment.  The  existing  law 
may,  however,  be  made  to  fulfil  in  a  large  measure  the  just  intention 
of  the  State;  and  the  abuses  that  have  grown  up  under  it  be  in  large 
part  eliminated  if  the  Supreme  Court  can  and  will  define  its  meaning  so 
clearly  that  the  rate-fixing  body,  whatever  its  character,  will  be  made 
powerless  to  either  err  or  make  merchandise  of  power. 

If  we  are  to  abandon  the  present  experiment  in  favor  of  municipal 
ownership,  the  management  of  works  in  every  particular  should  be 
placed  in  the  hands  of  a  commission  separate  and  apart  from  the  town 
councils  and  boards  of  supervisors,  under  such  conditions  of  appoin  - 
ment,  service,  and  publicity  of  accounts,  as  will  give  guarantee  of  an 
intelligent,  non-partisan,  business  management.  No  precautionary 
measure  deemed  prudent  for  the  safeguarding  of  the  public  under 
private  ownership  should  be  omitted  under  public  ownership.  Mere 
transfer  of  ownership  will  work  no  magic. 

After  wise  methods  have  been  evolved  and  the  protecting  arm 
of  wise  law  thrown  about  the  rights  of  all  parties  concerned,  still 
success  will  finally  be  determined  chiefly  by  the  character  of  the  public 
conscience,  for  this,  with  nations,  communities,  and  individuals,  must 
always  define  the  practical  limitations  of  self-government. 

The  California  Water  and  Forest  Association,  through  its  com- 
mittee on  legislation,  composed  of  such  men  as  W.  H.  Beatty,  chief 


1 6  Should    California    Municipalities 

justice  Supreme  Court  of  California;  John  D.  Works,  ex-justice 
Supreme  Court;  Frank  H.  Short,  attorney;  Benj.  Ide  Wheeler,  presi- 
dent of  the  University  of  California;  David  Starr  Jordan,  president  of 
Stanford  University;  Frank  Soule,  Engineering  Department  of  the 
University  of  California;  Chas.  D.  Marx,  Engineering  Department  of 
Stanford  University;  Elwood  Mead,  irrigating  expert  of  the  U.  S. 
Department  of  Agriculture,  and  F.  H.  Newell,  hydrographer  of  the 
U.  S.  Geological  Survey,  have  placed  themselves  on  record  as  favoring 
the  former  method,  that  is,  private  ownership  publicly  controlled;  and 
the  association  has  been  before  the  present  State  Legislature  with  a  bill 
drafted  by  the  above  gentlemen,  embodying  a  scheme  for  utilizing  the 
surplus  waters  of  the  State,  under  a  well-digested  plan  of  private  owner- 
ship and  public  regulation,  which  should,  if  it  becomes  law,  have  a 
marked  beneficial  result  on  irrigation  development.  Capital  would 
then  again  seek  such  investments,  because  it  would  have  the  guarantee 
of  fair  treatment  at  rates  of  interest  low  because  of  the  security  thus 
offered,  while  the  patron  of  such  enterprises  would  be  secured  against 
any  unreasonable  charge.  Water-works  distributing  to  municipalities . 
are  excluded  from  the  operation  of  this  proposed  law,  but  the  principles 
of  control  therein  embodied  are  as  applicable  to  the  one  as  to  the  other. 

But  if  municipal  ownership  is  earnestly  desired  by  any  city  of  Cal- 
ifornia, and  is  sought  in  an  honorable  way,  with  recognition  of  all  the 
equities  involved,  why  should  it  be  denied? 

The  last  query  of  my  subject  is,  "HOW  SHALL  IT  BE 
OBTAINED?" 

How  Shall    Ownership   Be    Acquired  by  Cities? 

Were  a  city  without  works,  the  question  need  not  be  asked.  But 
nearly  all  places  of  magnitude  in  California  are  supplied  by  private 
companies,  whose  works  were  built,  for  the  most  part,  before  the  adop- 
tion of  the  present  constitution.  For  purposes  of  discussion  we  will 
assume  this  condition. 

Municipal  ownership  may  then  be  attempted  in  one  of  two  ways, 
either  by  the  acquisition  of  the  existing  plant,  or  by  building  a  com- 
peting one.  An  apology  might  almost  be  asked  for  suggesting  the 
second  method,  but  it  has  too  many  adherents  to  permit  of  its  being 
ignored. 

Let  us  not  forget  that  the  purpose  of  municipal  ownership,  or  of 
any  other  radical  change,  is  primarily  the  securing  of  the  desired  com- 
modity at  the  least  cost  consistent  with  fairness. 

Let  us  now  ask  ourselves: — 


Own    Their    Own     Water-  Works  1 7 

What  are  the  claims  of  existing  plants? 

Will  good  morals  justify  the  denial  of  those  claims? 

Can  such  plants,  regardless  of  morals,  be  suppressed  by  competi- 
tion? And  is  such  a  course  adapted  to  the  securing  of  lower  rates? 

These  questions  the  writer  will  endeavor  to  answer  in  the  order 
named. 

What    Are     the     Claims    of    Existing    Plants?    and    Will 
Good   Morals  Justify  the  Denial  of  These  Claims? 

First:  They  have  a  valid,  legal  existence,  having  been  established 
by  virtue  of  the  laws  of  the  State. 

Second:  They  were  originally  constructed  under  legal  franchises, 
issued  by  the  municipalities  themselves,  and  that  usually  without  limit 
as  to  time. 

Third:  Their  projectors  have  undertaken  a  public  service  essential 
to  the  prosperity — yes,  to  the  very  existence  of  the  community. 

Fourth:  All  such  properties,  by  their  very  nature,  must  anticipate 
the  future;  must  precede  rather  than  follow  growth,  and  are,  therefore, 
seldom,  if  ever,  remunerative  for  many  years  after  first  construction. 
The  investments  tnat  are  necessary  in  their  creation, — and,  if  necessary, 
justifiable, — are,  therefore,  other  things  being  equal,  always  greatly  in 
excess  of  the  mere  estimated  cost  of  duplicating  at  a  subsequent  time 
the  structures  actually  in  use. 

Fifth:  Such  investments  are  continuing,  and  can  not  be  trans- 
ferred. They  must  be  increased  from  year  to  year  in  keeping  abreast 
of  community  growth.  They  are  a  hard  and  fast  part  of  the  commu- 
nity they  are  designed  to  supply,  and  of  little  or  no  value  apart 
from  it. 

Sixth:  The  corporations  owning  these  plants  built  them  with  very 
different  legal  restriction  as  to  rates  to  be  charged  from  those  now  pre- 
vailing; and  the  State  is  responsible  for  the  present  constitutional 
provision  which  has  fomented  the  present  irrepressible  strife. 

Seventh:  Our  Supreme  Court  has  said  that  "the  State  has  in 
effect  appropriated  the  water  and  the  plant  to  public  use,  and  for  that 
appropriation  it  is  bound  to  make  just  compensation. 

Eighth:  These  properties  are  usually  owned  by  private  citizens  of 
the  cities  which  they  supply,  and  by  destroying  them  the  city  is  making 
the  economic  blunder  of  impoverishing  its  own  citizens,  and  destroying 
taxable  values. 

The  mere  recital  of  these  claims  shows  that  they  can  not  be  ignored, 
and  that  for  a  municipality  to  deliberately  injure  or  seek  to  destroy 


1 8  Should    California    Municipalities 


such  investments  is  a  crime.  Nor  let  it  be  justified  as  a  reprisal  or 
war  measure.  This  is  simply  to  mistake  effect  for  cause;  and,  besides, 
such  measures  have  no  moral  standing  in  civil  matters.  What  is  to  be 
expected  from  the  conduct  of  municipal  works  by  any  community 
whose  ethics  would  encourage  such  a  course? 

Can   Privately  Owned   Plants   Be    Suppressed  by  Compe- 
tition, and   Is  Such  a  Course  Adapted  to  the 
Securing  of  Lower  Water  Rates? 

In  monopolistic  industries,  competition  never  effects  permanent 
price  reduction;  but,  on  the  contrary,  usually  results  in  combination, 
increased  capitalization,  and  a  higher  cost  and  price  of  the  commodity. 
The  principle  is  too  well  known  to  need  argument.  That  one  party  to 
the  competition  is  the  municipal  corporation  will  hardly  change  the 
operation  of  this  rule.  Experience  has,  so  far  as  is  known  to  the 
writer,  produced  as  yet  no  exceptions,  save  in  a  few  villages  and  small 
towns. 

Owing  to  the  requirements  of  the  California  law,  most  privately 
owned  water-works  properties  are  bonded  for  approximately  one-half 
the  investment.  New  works,  omitting  consideration  of  the  water- 
supply,  can  always  be  built  for  much  less  than  works  which  have  grown 
with  the  growth  of  the  town,  from  small  beginnings,  but  not  for  nearly 
so  much  a  proportion  as  one-half.  In  case  of  competition  with  a  plant 
owned  by  the  city,  water  would,  of  course,  be  sold  by  the  older  plant, 
regardless  of  cost,  at  whatever  price  would  hold  the  business.  Divi- 
dends would  be  passed  and  even  bond  interest  would  be  defaulted  if 
need  be.  Stock  values  would,  of  course,  suffer,  perhaps  to  the  extent 
of  destruction,  but  the  plant  would  remain,  for  it  could  not  be  moved 
to  another  market;  and  so  long  as  it  remains,  whoever  the  owners,  it 
would  be  operated  for  whatever  revenue  in  excess  of  mere  wages  and 
repairs  it  could  be  made  to  earn.  The  city,  by  provision  of  law,  must, 
on  the  contrary,  get  revenue  enough  to  pay  not  only  all  the  costs  of 
production,  including  interest  on  the  full  bonded  debt  (equal  in  such 
cases  to  the  investment),  but  must  also  each  year  pay  off  one-fortieth 
of  the  principal;  and  if  this  could  not  be  gotten  from  water  rentals,  it 
must  be  gotten  by  special  tax  levy  from  the  property  owners. 

These,  it  is  true,  would  in  many  cases  on  this  account  patronize 
the  municipal  plant,  but  in  dealing  with  the  public  it  is  usually  present 
price  rather  than  possible  ultimate  cost  that  determines  the  sale.  Ten- 


(h>.'fi    Their   Own     Water- Works  19 


ants,  and  parties  using  large  quantities  of  water  in  proportion  to  their 
assessed  property  values,  would,  of  course,  buy  in  the  lowest  market. 
Again,  the  established  companies  usually  have  large  sources  of  revenue 
outside  municipal  boundaries  which  can  be  drawn  upon  in  prosecuting 
their  struggles. 

Can  anybody  believe  that  out  of  this  cauldron  of  strife,  out  of  this 
compounding  of  economic  and  moral  crimes,  anything  but  disaster  to 
the  city  and  disaster  to  the  private  company,  and  an  ultimate  purchase 
of  the  interests,  the  one  of  the  other,  at  tremendous  loss,  it  may  be, 
but  still  on  such  a  basis  as  would  make  still  higher  rates  imperative, 
would  result?  It  is  unthinkable  that  anything  good  could  result,  or 
that  intelligent  men  should  ever  seriously  suggest  it,  save  as  a  threat 
made  in  hopes  of  winning  some  desired  concession  or  advantage. 

Conclusions  Summarized 

What,  then,  are  the  conclusions  of  the  whole  matter? — Briefly 
summarized,  they  are  these,  confined  in  their  application  particularly 
to  California  conditions:— 

First:  The  present  conflict  between  corporations  dispensing  water 
and  the  consumers  which  they  supply  is  institutional  and  not  personal. 
It  is  the  inevitable  consequence  of  the  existing  uneconomic  and 
imprudent  law  of  the  State. 

Second:  The  existing  condition  is  well-nigh  unbearable,  alike  to 
both  parties  to  these  controversies. 

Third:  The  remedy  is  threefold: — 

(a)   The  securing  by  appeal  to  the  courts  of  an  interpretation  of 
the  existing  organic  law,  so  definite  as  to  leave  the  present  rate-fixing- 
bodies    without    discretionary    power   on    vital    points,   to    be   supple- 
mented, if  possible,  by  securing  of  complete  publicity  of  accounts  by- 
state  auditing,  and  the  prevention  of  competition. 

(£)   Municipal  ownership  wisely  instituted. 

(c)  The  correction  of  the  defects  of  the  present  law  by  constitu- 
tional amendment,  so  drawn  as  to  secure  intelligent  and  impartial  rate 
fixing  at  periods  of  not  less  than  five  years,  by  wisely  constituted 
authorities,  by  methods  definitely  defined  by  law;  the  prevention  of 
competition;  and  the  publicity  of  accounts  both  by  means  of  annual 
reports  and  State  auditing  of  accounts. 

Fourth:  The  (a)  method  so  far,  as  it  can  be  effected  by  appeal 
to  the  courts,  is  the  only  one  open  to  the  corporations  in  the  present 
state  of  public  ignorance  and  prejudice,  though  it  is  for  many  reasons 


2o  Should    California    Municipalities 


less    desirable   than    the    third,   and   possibly  less   desirable   than    the 
second. 

Fifth:  Academically  considered,  the  (^)  and  (V)  methods  wisely 
employed  would  give  substantially  the  same  rate  of  charge  to  the 
consumer. 

Sixth :  The  difficulties  and  risks  attendant  upon  effecting  a  change 
in  both  ownership  and   method  of  handling  such  industries,   and  the 
inexpediency  of  sacrificing  the  results  of  experience  already  obtained,— 
an  experience  invaluable  as  an  indication  of  what  constitutes  the  essen- 
tials for  effective  control, — render  the  third  remedy  (the  correction  of 
the  defects  of  the  present  law    by  constitutional    amendment),   under 
average    conditions    more    conservative,   and    preferable   to    municipal 
ownership. 

Seventh:  If  cities  desire  the  acquisition  of  existing  works  at  a 
valuation  fair  and  reasonable  in  light  of  all  the  conditions  under  which 
they  have  of  necessity  been  created  and  operated,  it  should  not,  as  a 
matter  of  right  or  policy,  be  denied  them  by  their  owners. 

Eighth:  Municipal  ownership  can  be  acquired  in  a  manner  con- 
sistent with  good  morals,  where  the  demand  is  already  supplied  by  a 
private  corporation,  only  by  the  acquisition  at  an  equitable  valuation 
of  the  existing  plant. 

Ninth:  Disregarding  the  question  of  morals,  increasing  the  invest- 
ment without  widening  of  the  market,  must  increase  and  not  diminish 
rates  when  said  rates  are  determined  on  a  basis  of  cost  plus  a  fixed 
profit.  Therefore,  competition,  even  by  the  municipality,  must  fail  of 
its  purpose,  unless  it  can  absolutely  crush  its  adversary, — an  impossi- 
bility, save  in  the  case  of  very  weak  corporations  supplying  small 
places. 

These  conclusions  are  either  true  or  false.  If  false,  they  can  not 
become  effective.  If  true,  they  must  obtain  recognition.  Conjuring 
with  public  ignorance,  appealing  to  public  prejudice  with  motives 
honest,  or  selfish  and  dishonest,  may,  if  we  let  it,  continue  indefinitely 
and  plunge  our  moral  and  financial  interests,  both  public  and  private, 
into  still  greater  depths;  but  some  day  it  will  be  remedied.  How 
soon  depends/  upon  the  attitude  of  those  who  can,  if  they  will,  lead 
thought  aright,  and  whose  responsibility  for  the  right  use  of  that 
power  is  greater  than  they  think.  Believe  me,  the  forces  now  in 
seeming  conflict  are  nearer  together  in  harmonious  purpose  than  we 
think,  and  it  only  requires  a  little  mutual  confidence,  a  little  mutual 
forbearance,  a  little  walking  around  the  subject,  that  it  may  be  seen 
from  all  sides,  and  a  little  unimpassioned  educational  discussion,  to 


(la' n     Their    Ou'n     }\rater-  Works  21 


discover  friends  of  those  whom  we  have  accustomed  ourselves  to 
regard  as  enemies,  and  to  effect  cooperation,  to  the  common  end  that 
an  effective  remedy  may  be  found  and  applied  to  an  unwise  existing 
order  under  which  all  have  alike  suffered. 

What  the  movement  needs  is  leaders  of  the  right  stamp, — men  of 
breadth,  men  of  recognized  honesty  and  high-minded  purpose,  men 
who  feel  inspiration  in,  and  are  willing  to  work  for  an  ideal,  and,  above- 
all,  men  who  are  not  afraid  of  being  misunderstood,  or  of  having 
their  motives  impugned,  but  who  have  unbounded  faith  in  the  potency 
of  honest  investigation  and  absolutely  honest,  fearless  speech  in  the 
winning  of  the  multitude.  With  such  leaders  directing  a  campaign  of 
education,  there  is  not  a  remedy  hereinbefore  suggested  that  can  not, 
in  the  course  of  a  few  years,  be  worked  out  into  actual  reform. 
Already  the  spirit  moves,  the  waters  are  troubled.  Who  will  help  to 
bring  relief  to  the  stricken  State? 


